Before committing to a venture fund, an LP should be able to explain why the fund fits its mandate, who will make and manage its investments, how past results were produced, what the fund documents permit, and whether the LP can meet capital calls for the life of the fund. Ask each question in a way that can be checked against records, references, and the limited partnership agreement (LPA)—not just the GP’s presentation.
Standardized questionnaires can help organize diligence. ILPA’s Due Diligence Questionnaire, with revised materials identified as November 1, 2021, covers key inquiry areas; PRI’s venture-capital responsible-investment DDQ, published November 15, 2022, addresses responsible-investment practices. Treat both as starting frameworks: a completed questionnaire does not replace follow-up dialogue, document review, or your own investment decision.
1. Does the strategy fit your portfolio and mandate?
Ask the GP to describe the fund’s thesis in operational terms, then test whether the proposed portfolio could plausibly deliver it. A polished market narrative is less useful than an investment process, portfolio construction assumptions, and examples of decisions the team has made.
- What stage, sectors, geographies, and company profiles will the fund target? How does that differ from the GP’s prior fund or funds?
- How many investments are planned? How much capital is reserved for follow-on rounds, and what ownership or exposure assumptions underpin the target outcome?
- Where do deals come from, who evaluates them, how are investment decisions approved, and what support does the GP provide after investing?
- What conditions could cause the GP to change its strategy, pace, or portfolio construction?
Ask to see: the investment policy and process materials, portfolio construction model, prior-fund portfolio data, and examples that connect the stated thesis to actual investment decisions. The Inter-American Development Bank’s Venture Capital Fund Toolkit advises examining whether the proposed assets, philosophy, and strategy match the stated thesis.
#1 Best Overall
2. Can this team execute—and what does its track record actually show?
Do not treat a fund-level return figure as a self-explanatory record. Reconstruct how outcomes were generated, who contributed, and whether the people and process responsible will be present in the new fund. Past performance is evidence to investigate, not a guarantee of future results.
- For each material investment in the prior-fund record, who sourced it, approved it, and managed the relationship?
- Which results are realized and which remain unrealized? For unrealized holdings, what valuation evidence supports the marks, and how are changes in value determined?
- What drove the strongest and weakest outcomes? How much depended on company performance, financing conditions, timing, ownership, or the GP’s involvement?
- Which team members will work on the new fund, how much time will they devote, and how are responsibilities, economics, and succession handled?
- What happens if a key person leaves, becomes unavailable, or no longer devotes the expected time to the fund?
Ask to see: fund- and deal-level performance schedules, the basis and dates for valuations, realized proceeds records, attribution by investment professional, and relevant references. Compare the team shown in the track record with the team and decision-making structure proposed for this fund. The IDB toolkit and a published extract on fund investment due diligence both support examining prior performance and value drivers; neither makes past outcomes predictive.
3. How are alignment, conflicts, and LP governance handled?
Ask for specific policies and examples. Conflicts can arise when a manager runs multiple funds, invests through affiliates, makes co-investments, or serves portfolio companies in other capacities. The governing documents should explain how material decisions and conflicts are addressed.
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- How much are the GP and principals committing? How is that commitment funded, allocated among them, and treated if a principal departs?
- How are opportunities allocated among this fund, predecessor or successor funds, affiliates, and co-investors?
- How are related-party transactions identified, reviewed, approved, and disclosed to LPs?
- What powers does the LP advisory committee have, and which matters require LP consent? What key-person protections apply?
- How and when will the GP disclose regulatory inquiries, litigation, misconduct, or other material incidents?
Ask to see: conflict-of-interest and allocation policies, GP commitment details, relevant organizational documents, and the LPA provisions for advisory committee authority, consent, key persons, and disclosure. Use the ILPA Principles and ILPA’s DDQ as prompts, then verify the answers against this fund’s contracts and facts.
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Have fund counsel compare the LPA, offering materials, and any side letter as a package. A headline management-fee or carried-interest rate does not describe the full economic arrangement; definitions, timing, offsets, expense allocation, and exceptions matter over the fund’s life.
- Fees and expenses: How are management fees calculated and changed over time? Which fee offsets apply? How are organizational, broken-deal, transaction, and portfolio-company expenses allocated, and are there caps or cost-sharing rules?
- Carried interest and distributions: How is carried interest calculated? What is the distribution waterfall, when can carry be paid, and how does any clawback work?
- Fund duration: What is the fund term, how may it be extended, and who must approve extensions?
- Capital and transfers: What recycling is permitted? What restrictions apply to transfers, and what remedies follow an LP default?
- LP rights and exceptions: What reporting, audit, and consent rights apply? Do side letters alter economics, information rights, or other terms, and how are those differences handled?
Ask to see: the current LPA, offering documents, fee and expense schedules, and all proposed side-letter terms. Investor.gov explains that fund documents and agreements govern fees and expenses over a fund’s life in its guidance on private equity funds. ILPA’s Principles & Best Practices discusses expense caps, fair cost sharing, and fee transparency.
5. Can you manage the liquidity demands and capital calls?
A venture-fund commitment is not the same as a liquid investment that can be sold on demand. Investor.gov warns that private equity investors may need to hold an investment for several years before realizing a return and typically face withdrawal limitations. Apply that general warning to the particular venture fund by checking its LPA, capital-call provisions, transfer restrictions, and distribution mechanics.
- What is the expected fund life, how are extensions approved, and what factors could delay distributions?
- What notice and payment timetable applies to capital calls? Can your institution meet calls on schedule under adverse conditions?
- What happens if an LP cannot fund a call, and what default remedies does the LPA authorize?
- Does the fund use subscription credit facilities? For what purposes, at what cost, and under what limits or controls?
- How will the GP disclose a facility’s terms, costs, exposure, and effect on performance reporting?
Ask to see: the LPA’s call, default, extension, transfer, and distribution provisions; the fund’s capital-call procedures; and the GP’s subscription-line policy and reporting examples. ILPA’s guidance addresses how subscription lines can affect LPs and calls for visibility into performance effects, exposure, terms, and costs. Assess your own liquidity plan against the fund’s actual call timetable rather than assuming distributions will arrive when needed.
6. Are operations, valuations, and controls credible?
Operational diligence tests whether the GP can safeguard assets, keep reliable records, apply consistent valuation practices, and identify problems. Separate the GP’s own assurances from evidence supplied by administrators, auditors, policies, and records.
- Who administers the fund, conducts the audit, values investments, and maintains the books and records? What are each provider’s responsibilities?
- What written valuation policies apply to early-stage holdings that are difficult to price? Who can approve a valuation or a change in methodology?
- What controls cover cybersecurity, business continuity, compliance, and personal trading?
- What litigation, regulatory matters, conflicts, misconduct, or material incidents should LPs know about, and how are they escalated and disclosed?
Ask to see: the valuation policy, audited financial statements where available, administrator and auditor information, compliance materials, business-continuity and cybersecurity policies, and relevant incident disclosures. The IDB toolkit identifies conflicts, misconduct, litigation, risk, and the legal framework as diligence topics. Follow up on discrepancies between written policies, reported practice, and independent evidence.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.7. What will LPs receive during the fund’s life?
Agree on the information needed to monitor the investment before signing. Useful reporting should let an LP understand capital activity, portfolio developments, valuation changes, and material risks—not merely provide a periodic summary without definitions or context.
- What statements, portfolio information, valuation explanations, capital-call notices, and annual audited reports will LPs receive, and on what schedule?
- Are performance and portfolio reporting definitions consistent across funds and vintages? If not, how are differences explained?
- What responsible-investment or ESG risks are material to this strategy, and how are they assessed before and after investment?
- How will incidents, changes in risk, and progress on relevant commitments be reported to LPs?
Ask to see: sample LP reports, reporting definitions, the annual reporting calendar, and policies or examples for responsible-investment assessment and incident disclosure. PRI’s VC DDQ covers policy and governance, fundraising, pre- and post-investment practices, reporting, and disclosure; use questions material to your own mandate rather than treating every topic as equally relevant.
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How to compare funds without pretending there is a universal score
When evaluating more than one fund, request the same evidence on the same axes. There is no source-backed universal score or weighting: set priorities based on your mandate, portfolio, and capacity to bear risk. Record what is documented, what remains an assertion, and what requires a contractual answer.
| Comparison axis | What to compare | Evidence to request |
|---|---|---|
| Portfolio fit and strategy | Thesis, stage, sectors, geography, portfolio size, and follow-on assumptions | Investment process, construction assumptions, and prior-fund examples |
| Team and track record | Relevant experience, continuity, investment attribution, and realized versus unrealized outcomes | Deal-level performance support, valuation basis, team roles, and references |
| Economics and alignment | Fees, expenses, offsets, carry, GP commitment, and conflict protections | LPA, offering materials, fee schedules, conflict policies, and side-letter terms |
| Governance and reporting | LP rights, key-person provisions, disclosure, audit, and reporting quality | Contract provisions, sample reports, audit information, and incident procedures |
| Liquidity and operations | Fund term, call demands, default terms, credit-facility practices, and operational controls | Call and extension provisions, facility disclosures, valuation policy, and control materials |
| Responsible-investment fit | How material risks are assessed, managed, and reported for the strategy | Policies, diligence process, monitoring approach, and reporting examples |
ILPA’s DDQ and PRI’s VC responsible-investment DDQ can make coverage more consistent. Use the answers to guide tailored follow-up; the decision still depends on the LP’s mandate and its review of the fund’s evidence and governing documents.
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